Rice farmers expect demand to remain high

Issue Date: October 21, 2009

By Ching Lee
Assistant Editor

With strong prices expected for rice this year, Sutter County farmer Walt Trevethan planted all of his ground and hopes for a bountiful harvest. Trevethan stands in a rice field he worked feverishly to harvest before last week's storm.

After enjoying record-high prices for their crop last year, California rice farmers appear to be headed for another strong market year, as rice supplies from major exporters dry up, making the Golden State the only dependable exporter of medium grain rice to fill global demand.

Nathan Childs, an agricultural economist with the U.S. Department of Agriculture, said California farmers will continue to benefit from tight exportable supplies of medium grain rice in the world market and can expect healthy returns reminiscent of the last two years, when the U.S. shipped record levels of medium grain rice exports.

He said demand for medium grain rice, also known as japonica rice, typically does not fluctuate too much despite some population growth in countries that buy it, which include Japan, South Korea and Taiwan. So the current run-up in price is mostly a supply issue.

That's because two of California's biggest competitors, Australia and Egypt, have virtually bowed out of the export market. A severe drought Down Under has almost eliminated Australia as an exporter, and self-imposed restrictions on rice exports in Egypt mean the former top exporter of medium grain rice won't be shipping much rice for at least another year.

The world's largest rice-consuming nation, China, "continues to have production vs. consumption issues," said Jeremy Zwinger, president and CEO of Farm and Trade Inc. in Chico. That leaves China reluctant to export.

"This makes the U.S. the only reliable exporter of medium grain rice to fulfill global demand," Zwinger said.

"California growers have really picked up some markets that historically were divided by Australia and some by Egypt," Childs said. "And because these two suppliers are out, prices are much higher than they have historically been."

Responding to these higher prices, California growers planted 33,000 more acres of rice this year, with production estimated at 4.6 billon pounds, up from more than 4.3 billion pounds last year, according to the USDA.

The larger crop will draw down prices slightly for California farmers, said Childs, but prices will "still remain high by historic standards."

That's exactly what Walt Trevethan, a Sutter County rice grower, was hoping for when he planted his 500 acres this past spring. Motivated by high 2008 prices, Trevethan wanted to plant as much rice as he could this year, with the state's ongoing drought being the only potential spoiler. But late spring rains replenished enough of his water supply to allow him to plant what he wanted.

"You're only able to plant as much rice as you've got water for," he said. "In this particular case, with the rice prices looking decent and the water available, I decided to go ahead and plant all 500 acres, so that's what I did."

Global rice prices rose to record highs last year following price spikes for major agricultural commodities such as corn, wheat and soybeans, Childs said.

To drive down domestic prices and bolster supplies for their citizens, countries such as Egypt, Vietnam, China and India began reducing rice exports as rice-importing nations scrambled to secure supplies, further pushing up prices on the global market. A weak dollar and record oil prices also contributed to the rapid rise in price for U.S. farmers.

Even though much of the panic buying and fears of a rice shortage occurred in the Thai jasmine rice market, California farmers, who grow primarily medium grain and short grain rice, saw their prices jump to a record $19.30 per hundredweight last year, up from $16.20 cwt. in 2007.

"Very little of the world's rice is ever traded, so if countries ban exports, it can quickly change the dynamics," said Jim Morris, a spokesman for the California Rice Commission.

It also changes what farmers in other U.S. rice-producing states are doing, said Ryan Schohr, a rice farmer and president of the Butte County Farm Bureau. He noted that in recent years, farmers in Southern states such as Arkansas, Mississippi and Louisiana, which produce mainly long grain rice, have been growing more medium grain rice because of robust prices. But with the current high demand for long grain rice, they would be more inclined to switch back.

"If they don't plant the medium grain, that means there's even a greater shortage of our medium grain rice on the market," he said.

Butte County farmer Mike Denny said despite the state's increased rice acreage this year, he sees "no reason for the price to go down" when factoring in the global supply-and-demand picture. He said growers have a tendency to perceive what they plant and what they produce as having a direct effect on the price they'll earn for that crop, but with a globally traded commodity such as rice, sometimes the fundamentals are not so clear cut.

"Growers don't normally think of the rice industry as a global market, but they should," he said. "It's getting to the point where you almost have to be a technical trader. You have to look at what's happening globally to make decisions about buying and selling."

He said there are many factors that determine what he plants and how much. Last spring he decided to grow less short grain rice and more medium grain and to forward-contract a third of his acreage based on factors in the global market. And so far, he said it looks like it was a good decision.

To make those decisions, Denny said he consults marketing reports from a number of rice-producing countries and tracks weather events, including California's own water shortage, and rice prices from all over the world. He keeps tabs on what's going on politically in other countries, as government policies often affect world trade. He also looks at the value of the dollar, as well as the state of the global economy, for indications of countries' ability to buy rice.

"I think all growers need to look at how they market whatever commodity they're growing from a global market perspective," Denny said.

(Ching Lee is an assistant editor of Ag Alert. She may be contacted at clee@cfbf.com.)

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